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China says trade surplus growth set to ease

Expansion in China’s politically sensitive trade surplus will slow in the second half, as recently adopted measures aimed at trimming exports start to take hold, the Commerce Ministry said.

China’s trade surplus hit a record $26.9 billion in June, continuing a string of strong results that brought the overall surplus for the first half to $112.5 billion—83% higher than in the January to June period of 2006.

Some economists said the large surplus in June was partly the result of exporters rushing out shipments ahead of July 1, when value-added tax rebates on more than 2,800 export products were either cut or scrapped.

Wang Xinpei, a spokesman for the ministry, said that the rebate cuts and related measures introduced in the first half—which have included new export tariffs on some energy-intensive products—would help slow expansion in the surplus.

“It is predictable that growth in the trade surplus will slow in the second half, which is what we want to see,” he told a routine press conference.

The swelling of China’s trade surplus in recent months has handed further ammunition to critics—particularly in Washington—who say the yuan remains significantly undervalued, giving an unfair advantage to Chinese exporters.

The yuan hit a high of 7.5656 against the dollar, its strongest level since it was revalued by 2.1% and decoupled from a dollar peg in July 2005. It has now strengthened by almost 7.2% since the revaluation.

Stephen Green, an economist with Standard Chartered Bank in Shanghai, said that it was still unclear what impact the recent tax rebate cuts would have on trade.

“We will have to wait at least three months to see any effect—and possibly longer since many firms who invested in these sectors will continue to manufacture and export given their capacity is already in place,” Green said in note to clients.

He is forecasting that the full-year surplus will reach $300-$320 billion, which is among the highest estimates of economists.

The surplus in the 12 months through June hit $229.2 billion, compared with $177.5 billion in the calendar year 2006. (Reuters)

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